reviewing and evaluating
information about an applicant and applying what is known of the individual against the insurer's standards and guidelines for insurability and premium rates.
The underwriting process is accomplished by
the size of the requested policy and the risk profile developed after an initial review of the application
Underwriters have several sources of underwriting information available
to help them develop a risk profile of an applicant. The number of sources
checked usually depends on several factors, most notably..
comprehensive and diligent the underwriting research.
The larger the policy, the
more...
The Application
source of underwriting, the basic source of insurability information Regardless of what other sources of
information the underwriter may draw from, the application is the first source of information to be reviewed and will
be evaluated thoroughly. Thus, i
Part I-General
Part of the application asks general questions about the proposed insured, including name, age, address,birth date, sex, income, marital status, and occupation.Details about the requested insurance coverage are
also included:
? Type of policy
? Amount of
Part II-Medical
part of the application, focuses on the proposed insured's health and asks a number of questions about the health history. This medical section must be completed in its entirety for every application. Depending on the proposed policy face amount, this sec
Part lll-Agent's Report
part of the application, is often called the agent's report. This is where the agent reports personal observations about the proposed insured. Because the agent represents the interests of the insurance company, the agent is
expected to complete this part
The medical Report
source of underwriting, Quite often, a policy is issued on the basis of the information provided in the application alone. If the application's medical section raises questions specific to a particular medical condition, the underwriter may also request a
The Medical Information Bureau
Another source of underwriting information that specifically focuses on an applicant's medical history is the Medical Information Bureau (MIB). The MIB is a nonprofit central information agency that was established years ago by a number of insurance compa
USA Patriot Act
requires insurance companies to establish formal anti-money laundering programs. purpose to detect and deter terrorism.
Special Questionnaires
The most common of these is the aviation questionnaire
required of any applicant who spends a significant amount of time flying.
may be required for underwriting purposes to provide more detailed information related
to aviation or avocation, foreign residence, finances, military service, or occupation.
Inspection Reports
Insurance companies normally obtain inspection reports from national investigative agencies or firms.
usually are obtained by insurance companies on applicants who apply for large amounts of life
and health insurance. These reports contain information about prospective insureds, which is reviewed to determine
their insurability
inspection Reports
The purpose of these reports is to provide a picture of an applicant's general character and reputation, mode of living, finances, and any exposure to abnormal hazards. Investigators or inspectors may interview employees, neighbors, and associates of the
company rules vary as to the sizes of policies that require a report by an outside agency.
Inspection reports ordinarily are not requested on applicants who apply for smaller policies, although..
the prospect that it is permitted to do so under The Fair Credit Reporting Act.
If an insurance company obtains an inspection report on a prospective insured, it must inform..
lose money
Applicants who have questionable credit ratings can cause an insurance company to
allow their policies to lapse within a short time, perhaps even before a second
premium is paid
Applicants with poor credit standings are likely to..
the insurer's expenses to acquire the policy cannot be recovered in a short period of time. It is possible that home office underwriters will refuse to insure persons who have failed to pay their bills or who appear to be applying for more life and health
An insurance company can lose money on a policy that is quickly lapsed, because..
Applicant Ratings
an applicant represents a risk so great that the applicant is considered uninsurable, and the application will be rejected. However,
the majority of insurance applicants fall within an insurer's underwriting guidelines and accordingly will be
classified a
risk classification
Once all the information about a given applicant has been reviewed, the underwriter seeks to classify the risk that the applicant poses to the insurer.This evaluation is known
Preferred Risk
Companies issue preferred risk policies with reduced premiums with the expectation of better than normal mortality or morbidity experience. Characteristics that contribute to a preferred risk rating include not smoking, weight within an ideal range, and n
preferred risk classification.
Many insurers reward good risks by assigning them to a...
Standard Risk
is the term used for individuals who fit the insurer's guidelines for policy issue without special restrictions or additional rating. These individuals meet the same conditions as the tabular risks on which the insurer's premium rates are based.
Substandard Risk
A substandard risk is one below the insurer's standard or average risk guidelines. An individual can be rated as substandard for any number of reasons: poor health, a dangerous occupation, or attributes and habits that could be hazardous. Some substandard
Proper Solicitation
an agent's solicitation and prospecting efforts should focus on cases that fall within the insurer's underwriting
guidelines and represent profitable business to the insurer. At the same time, the agent has a responsibility to the
insurance-buying public
Completing the Application 10
...
Changes in the Application
The application for insurance must be completed accurately, honestly, and thoroughly, and it must be signed by the insured and witnessed. When an applicant makes a mistake in the information given to an agent in completing the application, the applicant c
Initial Premium and Receipts
It is generally in the best interests of both the proposed insured and the agent to have the initial premium paid with
the application and forwarded to the insurer. For the agent, this will usually help solidify the sale and may accelerate the payment of
Premium Mode
refers to the policy feature that permits the policyowner to select the timing of premium
payments. Insurance policy rates are based on the assumption that the premium will be paid annually atthe beginning of the policy year and that the company will have
? Annual
? Semi-Annual
? Quarterly
? Monthly
Premium Payment Options:
Conditional Receipts
The most common type of premium receipt. this indicates that certain conditions must be met in order for the insurance coverage to go into effect. provides that when the applicant pays the initial premium, coverage is effective on the condition that the a
Binding Receipts
receipt, coverage is guaranteed until the insurer formally rejects the application. Even if the
proposed insured is ultimately found to be uninsurable, coverage is still guaranteed until rejection of the application. Since the underwriting process can oft
Constructive Delivery
is accomplished technically if the insurance company
intentionally relinquishes all control over the policy and turns it over to someone acting for the policyowner,
including the company's own agent. Mailing the policy to the agent for unconditional deliv
Most applicants will not remember everything they should about their policies after they have signed the application. This is another reason agents should deliver policies in person. Only by personally delivering a policy does the agent have a timely oppo
Explaining the Policy and Ratings to Clients
In some instances, the initial premium will not be paid until the agent delivers the policy. In such cases, common company practice requires that, before leaving the policy, the agent must collect the premium and obtain from the insured a signed statement
Obtaining a Statement of Insured's Good Health
Physical Condition
An applicant's present physical condition is of primary importance when evaluating health risks.
Moral Hazards
The habits or lifestyles of applicants also can flash warning signals that there may be additional risk for
the insurer. Personalities and attitudes may draw attention in the underwriting process. (Excessive drinking and the use of drugs) Applicants who a
Occupation
occupations involving heavy machinery, strong chemicals, or high electrical
voltage, for example, represent a high degree of risk for the insurer. According to the change of occupation provision, if the insured changes to a less hazardous job, the insurer
applicant's age, sex, medical and family history (An applicant's medical history may point to the possibility of a recurrence of a certain health condition.
Likewise, an applicant's family history may reflect a tendency toward certain medical conditions o
Other Risk Factors:
Insurable Interest
exists if the applicant is in a position to suffer a loss should the insured
incur medical expenses or be unable to work due to a disability, prerequisite for issuing a health insurance policy
as a preferred risk, a
standard risk, a substandard risk, or an uninsurable risk.
There are four ways to classify the applicant and their request for health coverage:
are usually issued a policy at standard terms and rates
Standard risk applicants...
generally receive lower rates than standard risks, reflecting the fact that people in this class have a better-than-standard risk profile
Preferred risks applicants..
(those who pose a higher-than-average risk for one or morereasons) are treated differently. The insurer can either: reject the risk, charge
a higher premium (called a rating), or attach a rider excluding specified coverages
Substandard risk applicants...
Interest
interest is a major element in establishing health insurance premiums. A large
portion of every premium received is invested to earn interest. The interest earnings reduce the
premium amount that otherwise would be required from policyowners.
Expenses
Every business has expenses that must be paid and the insurance business is no different. Each health
insurance policy an insurer issues must carry its proportionate share of the costs for employees' salaries, agents' commissions, utilities, rent or mortg
Secondary Premium Factors
The benefits provided under the policy
� Past claims experience
� The age and sex of the insured
� The insured's occupation and hobbies
Benefits
The number and kinds of benefits provided by a policy affect the premium rate
The greater the benefits, the higher the premium. To state it another way,
the greater the risk to the company, the higher the premium.
Claims Experience
Before realistic premium rates can be established for health insurance, the insurer must know
what can be expected as to the dollar amount of the future claims
� The most practical way to estimate the cost of future claims is to rely on claims tables base
Community Rating
This concept requires health insurance providers to offer health insurance policies within a given geographical area at the same price to all individual or group plans without medical underwriting, regardless of their health status.
Premium Mode
Health insurance policies are typically paid monthly, quarterly, semi-annually, or annually. Single premium is not used when paying for health insurance policies.
Morbidity
Whereas mortality rates show the average number of persons within a larger group of people who can
be expected to die within a given year at a given age, morbidity rates show the expected incidence of
sickness or disability within a given group during a g
Taxation of Disability Income Insurance
Premiums paid for personal disability income insurance are not deductible by the individual
insured, but the disability benefits are tax-free to the recipient
� When a group disability income insurance plan is paid for entirely by the employer and benefit
Taxation of Medical Expense Insurance
� Incurred medical expenses that are reimbursed by insurance may not be deducted from an
individual's federal income tax
� Incurred medical expenses that are not reimbursed by insurance may only be deducted to the
extent they exceed 7.5% of the insured's
Policy Design
The design or structure of a policy and its provisions can have an impact on an insurer's cost
containment efforts.
� A higher deductible will help limit claims and contain costs
� Coinsurance is another important means of sharing the cost of medical care
Medical Cost Management
Defined as the process of controlling how policyowners utilize their policies. There are four general
approaches insurers use for cost management: mandatory second opinions, precertification review,
ambulatory surgery, and case management.
Mandatory Second Opinions
� In an effort to reduce unnecessary surgical operations, many health policies today contain a
provision requiring the insured to obtain a second opinion before receiving elective surgery
� Under the mandatory second surgical opinion provision, an insured
Precertification Review
To control hospital claims and prevent unnecessary medical costs, many policies today require policy
owners to obtain approval from the insurer before entering a hospital for elective surgeries
� A pre-hospitalization authorization program (pre-certificat
Ambulatory Surgery
The advances in medicine now permit many surgical procedures to be performed on an outpatient
basis where once an overnight hospital stay was required. These outpatient procedures are commonly
referred to as ambulatory surgery.
Case Management
� Case management involves a specialist within the insurance company, such as a registered nurse,
who reviews a potentially large claim as it develops to discuss treatment alternatives with the insured
� The purpose of case management is to let the insure
Point-of-Service Plans
A point-of-service plan allows the insured to choose either a network or an out-of-network
provider at the time care is needed.
� With in-network coverage, the insured receives care through a particular network of
doctors and hospitals participating in th